Macroeconomic Snapshot of 4 Months: Inflation at 5.38%; Foreign Reserves Reach USD 12.75 Billion; Remittance Surges 26.4%

Nepal Rastra Bank, the central bank of Nepal, has unveiled the current macroeconomic and financial situation of Nepal based on the first four month's data ending mid-November of 2023/24.

Overall

Nepal Rastra Bank estimated that the inflation remained at 5.38 percent on a y-o-y basis. The gross foreign exchange reserves stood at USD 12.75 billion, whereas, the total imports increased by 3.8 percent, exports decreased by 7.7 percent and the trade deficit increased by 3.3 percent.

As of mid-November 2023, the outstanding concessional loan remained at Rs.184.51 billion extended to 141,369 borrowers. Of this, Rs.128.55 billion has been extended to 58,043 borrowers for selected commercial agriculture and livestock businesses. Likewise, a Rs.53.20 billion loan has been extended to 80,776 women entrepreneurs. A total of 2,550 borrowers have availed of Rs. 2.76 billion in concessional loans in other specified sectors.

NEPSE index stood at 1852.09 in mid-November 2023 compared to 1911.26 in mid-November 2022.

Inflation

The y-o-y consumer price inflation stood at 5.38 percent in mid-November 2023 compared to 8.08 percent a year ago.

The y-o-y wholesale price inflation stood at 2.09 percent in mid-November 2023 compared to 10.02 percent a year ago. The y-o-y wholesale price index of consumption goods, intermediate goods, and capital goods increased 2.63 percent, 1.71 percent, and 2.67 percent respectively. The y-o-y wholesale price of construction materials decreased by 1.05 percent in the review month.

Import and Export

During the review period, merchandise exports decreased 7.7 percent to Rs.50.57 billion compared to a decrease of 33.3 percent in the same period of the previous year. Destination-wise, exports to India decreased by 14.5 percent whereas exports to China and other countries increased by 307.9 percent and 4.7 percent respectively. Exports of zinc sheet, particle board, juice, readymade garments, polyester yarn & thread, among others increased whereas exports of palm oil, soyabean oil, tea, woolen carpet, and rosin, among others decreased.

During the four months of 2023/24, merchandise imports decreased 3.8 percent to Rs.512.50 billion compared to a decrease of 18.1 percent a year ago. Destination-wise, imports from India and other countries decreased by 2.5 percent and 27.7 percent respectively while imports from China increased 34.4 percent. Imports of readymade garments, M.S. wire rods, bars, and coils, electrical equipment, textiles, and aircraft spare parts, among others, increased whereas imports of crude soyabean oil, gold, petroleum products, crude palm oil, M.S. billet, among others decreased.

The total trade deficit decreased 3.3 percent to Rs.461.94 billion during the review period. Such a deficit had decreased by 15.9 percent in the corresponding period of the previous year. The export-import ratio decreased to 9.9 percent in the review period from 10.3 percent in the corresponding period of the previous year.

Services and Remittance

Net services income remained at a deficit of Rs.28.20 billion in the review period compared to a deficit of Rs.26.78 billion in the same period of the previous year.

Remittance inflows increased 26.4 percent to Rs.477.96 billion in the review period compared to an increase of 20.4 percent in the same period of the previous year. In US Dollar terms, remittance inflows increased 23.1 percent to 3.60 billion in the review period compared to an increase of 10.8 percent in the same period of the previous year.

Inter-bank Transaction

BFIs inter-bank transactions amounted to Rs.1958.87 billion on a turnover basis including Rs. 1743.94 billion inter-bank transactions among commercial banks and Rs.214.93 billion among other financial institutions (excluding transactions among commercial banks). In the corresponding period of the previous year, such transactions were Rs.1267.22 billion including Rs.1148.27 billion among commercial banks and Rs.118.95 billion among other financial institutions (excluding transactions among commercial banks).

Price of Oil and Gold

Foreign Exchange Reserves and Adequacy Indicators

Gross foreign exchange reserves increased 10.2 percent to Rs.1696.78 billion in mid-November 2023 from Rs.1539.36 billion in mid-July 2023. In US dollar terms, the gross foreign exchange reserves increased 8.9 percent to 12.75 billion in mid-November 2023 from 11.71 billion in mid-July 2023.

Of the total foreign exchange reserves, reserves held by NRB increased 10.8 percent to Rs.1490.83 billion in mid-November 2023 from Rs.1345.78 billion in mid-July 2023. Reserves held by banks and financial institutions (except NRB) increased 6.4 percent to Rs.205.95 billion in mid-November 2023 from Rs.193.59 billion in mid-July 2023. The share of Indian currency in total reserves stood at 21.8 percent in mid-November 2023.

Based on the imports of four months of 2023/24, the foreign exchange reserves of the banking sector are sufficient to cover the prospective merchandise imports of 13.6 months and merchandise and services imports of 11.3 months. The ratio of reserves-to-GDP, reserves-to-imports, and reserves-to-M2 stood at 31.5 percent, 94.3 percent, and 26.7 percent respectively in mid-November 2023. Such ratios were 28.6 percent, 83.0 percent, and 25.1 percent respectively in mid-July 2023.

Exchange Rate

Nepalese currency vis-à-vis the US dollar depreciated 1.18 percent in mid-November 2023 from mid-July 2023. It had depreciated 1.51 percent in the same period of the previous year. The buying exchange rate per US dollar stood at Rs.132.74 in mid-November 2023 compared to Rs.131.17 in mid-July 2023.

According to the Ministry of Finance, Financial Comptroller General Office (FCGO), the total expenditure of the Nepal Government stood at Rs.355.63 billion during the four months of 2023/24. Compared to the growth of 22.1 percent in the last fiscal year, government expenditure increased by 1.3 percent only in the review period. The recurrent expenditure, capital expenditure, and financial expenditure amounted to Rs.271.17 billion, Rs.29.99 billion, and Rs.54.47 billion respectively in the review period.

In the review period, the total revenue mobilization of the Nepal Government (including the amount to be transferred to provincial and local governments) stood at Rs.276.64 billion. The tax revenue amounted to Rs.254.30 billion and the nontax revenue was Rs. 22.34 billion in the review period.

Banking

Domestic credit increased by 2.2 percent in the review period compared to an increase of 2.1 percent in the corresponding period of the previous year. On a y-o-y basis, domestic credit increased 8.8 percent in mid-November 2023.

Monetary Sector's claims on the private sector increased by 3.0 percent in the review period compared to an increase of 2.4 percent in the corresponding period of the previous year. On a y-o-y basis, such claims increased by 5.2 percent in mid-November 2023.

Interest Rates

The average base rates of commercial banks, development banks, and finance companies stood at 9.74 percent, 12.00 percent, and 13.33 percent respectively in the fourth month of 2023/24. The average base rate of commercial banks was 10.60 percent in the corresponding month a year ago.

Balance of Payments

Balance of Payments (BOP) remained at a surplus of Rs.147.11 billion in the review period against a surplus of Rs.20.03 billion in the same period of the previous year. In US Dollar terms, the BOP remained at a surplus of 1.11 billion in the review period against a surplus of 149.6 million in the same period of the previous year.